Moderating Effect Of Institutional Quality On The Relationship Between Foreign Direct Investment, Trade Openness, Economic Growth And Development In West Africa

Abstract

This study examined the moderating effect of institutional quality in the relationship among FDI, trade openness, economic growth, and economic development in West Africa. Using an ex post facto research design, the study employed a convenience sampling technique to select 14 out of 15 countries in the region, based on data availability. The study was theoretically anchored on the endogenous growth theory, as well as the FDI-led and trade-led growth hypotheses, which guided both variable selection and model specification. Data were sourced from the World Bank’s World Development Indicators (WDI), the Central Bank of Nigeria (CBN) and the United Nations Conference on Trade and Development (UNCTAD) databases. For model estimation, the study utilized the panel Feasible Generalized Least Squares (FGLS) technique, which is robust to cross-sectional dependence, heteroskedasticity, and serial correlation. The results reveal that increases in both FDI and trade openness significantly stimulate economic growth in West African countries, with higher institutional quality amplifying these effects. Similarly, both FDI and trade openness were found to positively influence economic development, and sound institutional quality enhances these developmental impacts. The study further established that institutional quality exerts a direct and positive effect on both economic growth and economic development in the sampled countries. In light of these findings, the study recommends that West African countries sustain and, where necessary, deepen trade and capital account liberalization policies to facilitate greater trade and FDI flows. Also, the policymakers in the region should prioritize comprehensive institutional reforms.